| Question |
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| Answer |
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| Call Feature |
A bond provision allowing the issuer of the bonds to buy the bonds back before maturity at a specified price. |
| Convertibility Clause |
A bond provision that allows investors to convert the bond into a specified number of common stock shares. |
| Forward Rate |
The one-year interest rate that is anticipated one year ahead; commonly used as the markets forecast of the future interest rate. |
| Investment-Grade Bonds |
Bonds that are rated as Baa or better by Moody's and BBB or better by Standard and Poor's (S&P). |
| Liquid Security |
A security that can be easily converted to cash without a significant loss in value. |
| Liquidity Premium Theory |
A theory stating the shape of a yield curve depends on investors' and borrowers' preferences for liquidity. |
| Preferred Habitat Theory |
A theory stating that the shape of the yield curve is determined primarily by the segmented markets theory; however, investors and borrowers may wander from their preferred markets if certain events occur.
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| Pure Expectations Theory |
A theory stating that the shape of the yield curve is determined solely by expectations of future interest rates. |
| Segmented Markets Theory |
A theory stating that the shape of the yield curve is a result of investors' and borrowers' actions, who choose securities with maturities that satisfy their foretasted cash needs. |
| Term Structure of Interest Rates |
The relationship between maturity and annualized yield. |
| Yield Curve |
A Graph showing the relationship between maturity and annualized yield. |
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